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Accounting/Finance

08/26/2013

We continued our Celebrating 40 Years of Excellence! Webinar Series with a webinar focusing on giving a Construction Industry Technical Update, presented by David Blain (Principal), Lisa White (Senior Manager), and Michael Hoffner (Partner) with McKonly & Asbury.

We focused on recent accounting and tax changes impacting the construction industry and also covered upcoming accounting guidance changes with revenue recognition and other related topics. We then provided guidance to new federal and state tax legislation that will impact contractors.

08/05/2013

Join us on August 15 as we continue our Celebrating 40 Years of Excellence! Webinar Series with a webinar that will provide a construction industry technical update.

This webinar will focus on recent accounting and tax changes impacting the construction industry. It will also cover upcoming accounting guidance changes with revenue recognition and other related topics and will provide guidance to new federal and state tax legislation that will impact contractors. Presenters include Michael Hoffner, Partner; David Blain, Principal; and Lisa White, Senior Manager with McKonly & Asbury.

This free, hour-long webinar will take place on Thursday, August 15th at 2:00 p.m. EST. This program is a live webinar which offers you the opportunity to ask questions and interact with the presenters. There is no quiz and no exam. This webinar qualifies as live CPE and is not considered self-study. No prerequisites are necessary for this webinar and the program level is intermediate.

07/01/2013

Construction companies with federal and state contracts subject to Davis-Bacon Law have the opportunity to use prevailing wage fringe benefits to gain a competitive advantage in the market place. The Davis-Bacon Act of 1931 is a United States federal law that establishes the requirement for paying the local prevailing wages on public works projects for laborers and mechanics. It applies to “contractors and subcontractors performing on federally funded or assisted contracts in excess of $2,000 for the construction, alteration, or repair (including painting and decorating) of public buildings or public works”.

The prevailing wage fringe benefits can be used as follows:

Into a vacation fund

Into an approved apprenticeship program or trust

Furnish “bona fide” fringe benefits

As cash, and have it treated as wages

When prevailing wage fringe benefits are paid as cash and treated as wages, it is costly to the employer as they are subject to payroll taxes. This can result in the Company estimating their bid cost higher than if they were having the fringe benefits contributed into a bona fide Plan:

By contributing the prevailing wage fringe benefits into a “bona fide” plan, the bid cost is reduced and the Company may gain a competitive edge over their competitors.

04/01/2013

In the July 2012 addition of the ABC Spokesman, I reported to you the new proposed revenue recognition guidance and how it will impact the construction industry. Since then, the Financial Accounting Standards Board (FASB) and interested parties in this proposed revenue recognition guidance have met to discuss this new proposed standard and to try to finalize the guidance for all industries. On February 20, 2013, the FASB and its interested parties concluded there discussions to produce what is believed to be final revenue recognition guidance. The new standard titled “Revenue From Contracts With Customers” is the outcome of these meetings and deliberations.

While the original and reissued exposure draft outlined numerous accounting changes for the construction industry, the proposed new guidance appears to provide a revenue recognition model that will produce results similar to results from the current model for many construction-type contracts. The new guidance will continue to recognize the use of percentage-of-completion accounting and other currently used accounting methods familar to those in the construction industry with some changes. Overall the final outcome of this project appears to be positive for the construction industry.

While most of the new proposed guidance is consistent with the current model, there were some changes that are different and will require additional analysis in order to meet the new standard. The following is a summary of the key changes between the new revenue recognition model and that initially proposed:

Collectibility (bad debt): Impairments from customer receivables will need to be presented prominently as an expense in the statement of comprehensive income.

Uninstalled materials and inefficient costs: Clarifying language will be provided to assist in determining how uninstalled materials and inefficient costs will impact a cost-to-cost measurement model of satisfying a performance obligation over time.

Variable consideration (claims, awards, etc.): Construction entities will recognize revenue only up to the amount that should not be subject to significant future reversals. This constraint would be applied to the measurement of the transaction price (i.e., contract revenue).

Transition method: A company has two options for transition (1.) Retrospective basis, or (2) Practical expedient approach. The practical expedient approach would permit an entity to:

Apply the standard to all existing contracts as of the applicable effective date (by recognizing the cumulative effect in opening retained earnings rather than restating comparative years) and to new contracts going forward; and

Disclose and explain the impact of adoption through this practical expedient on all relevant financial statement line items in the period of adoption.

This proposed standard will be effective for annual reporting periods beginning on or after January 1, 2017 for public entities and delayed one year to January 1, 2018 for non-public entities. The FASB will not permit early adoption of this proposed new standard. The finalized standard is expected to be released in the second quarter of 2013.

Multiemployer pension plans commonly are used by an employer to provide benefits to union employees who may work for many employers during their working life, thereby enabling them to accrue benefits in a single pension plan for their retirement.

The amount of employer contributions made to each significant plan and to all plans in the aggregate.

An indication of whether the employer’s contributions represent more than five percent of total contributions to the plan.

An indication of which plans, if any, are subject to a funding improvement plan.

The expiration date(s) of the collective bargaining agreement(s) and any minimum funding arrangements.

The most recent certified funded status of the plan, as determined by the plan’s so-called “zone status,” which is required by the Pension Protection Act of 2006. If the “zone status” is not available, an employer will be required to disclose whether the plan is:

Less than 65 percent funded

Between 65 percent and 80 percent funded

At least 80 percent funded.

A description of the nature and effect of any changes affecting comparability for each period in which a statement of income is presented.

Prior to the issuance of this Update, employers were required to disclose only their total contributions to all multiemployer plans in which they participate.

For public entities, the enhanced disclosures will be required for fiscal years ending after December 15, 2011. For nonpublic entities, the enhanced disclosures will be required for fiscal years ending after December 15, 2012. Early application will be permitted.

01/21/2013

According to the Association of Certified Fraud Examiners’ 2012 Report to the Nations on Occupational Fraud and Abuse, construction companies endured a median loss of $300,000 per incident. There are three basic types of accounting fraud: asset misappropriation, financial statement misrepresentation, and corruption. As a CFM, you should be aware of the differences.

Assetmisappropriation occurs when an employee uses the company’s assets, such as cash or inventory, for any reason other than the asset’s intended purpose. Types of asset misappropriation include check forgery, larceny, and inventory theft.

For example, Subcontractor X sells plumbing services to its customers. The subcontractor’s A/P clerk has the ability to input invoices and print checks from the accounting system. She occasionally prints checks to herself, then inputs a fake invoice in the accounting system to make the check look like it was paid to a legitimate vendor.

What makes this potentially fraudulent? The A/P clerk is misappropriating the company’s asset for her own benefit and representing to the company that the check was written for the vendor listed in the accounting system, not herself. Subcontractor X is relying on this representation for its own internal purposes.

Financial statement misrepresentation occurs when an employee falsifies items in the company’s accounting records or financial statements. This could be amounts in the balance sheet or income statement, or disclosures in the financial statement notes.

Suppose Subcontractor X’s corporate division manager is under pressure to increase his division’s operating income. Instead of looking for areas where the division could operate more efficiently, he decides to code certain supply expenses and repair and maintenance expenses as fixed assets in the company’s accounting system to make it appear as if his division’s operating expenses are less than they actually are. Similar to the last scenario, this employee is misrepresenting his division’s expenses to the company. Users of the financial statements may rely on this information for various reasons, so the company may be damaged by these actions.

Corruption is more often associated with government officials than employees of a corporation, but corruption can occur in both types of organizations. Types of corruption schemes include kickbacks and bribes. If Subcontractor X’s purchasing agent periodically receives nominal payments or lavish gifts from one of the company’s largest vendors without the company’s knowledge, this could be a kickback. This employee may be more inclined to give more business to this vendor, even if it is not in the best interest of the company.

Awareness is the first step in fraud prevention. Be sure you are aware of these three types of fraud in order to protect your business.

This post was first seen on the CFMA Newsletter. The post was written by Marcelle H. Piglia and Robert Berger of Anders Minkler & Diehl LLP. Both can be reached at mpiglia@amdcpa.com and rberger@amdcpa.com or 314.655.0170.

11/12/2012

McGraw-Hill Construction (MHC) has released its 2013 Construction outlook at its 74th annual Outlook Executive Conference in Washington D.C. Its 2013 Dodge Construction Outlook reports that total U.S. construction starts for 2013 to rise 6 percent to $483.7 billion, slightly higher than the 5 percent increase to $458 billion estimated for 2012. Total nonresidential building construction, MHC predicts, will decline 10 percent in 2012 and grow 5 percent in 2013. While overall commercial building construction is expected to grow 5 percent in 2012 and 12 percent in 2013, office constructionwill “remain the laggard, as business hesitancy and lackluster employment growth deter new development,” MHC says. Office construction will be down 2 percent in 2012, MHC predicts. “Subpar economic growth, weak employment gains, and tepid improvement in office rents and vacancies created a less than supportive environment for office development,” MHC says. “The main drag, however, remained the disappointing labor market.”

MHC says the volume of deferred projects is easing, vacancies are retreating after peaking in 2012, and corporate earnings have been strong. MHC also sees signs that speculative development is “slowly stirring.” MHC predicts 8 percent growth in 2013. Store construction is on track to grow by 15 percent in 2012, despite a pullback in development by major stores like Walmart and Target. MHC expects store construction to grow 18 percent in 2013, as the housing market continues to strengthen, foreclosures wane and prices bottom out. Driven by construction of regional facilities for Amazon, warehouse construction will grow 38 percent in 2012, MHC says, followed by 10 percent growth in 2013.

Hotel construction is experiencing more positives these days, such as improved business travel and stronger industry financials. MHC predicts 23 percent growth in 2012 and 12 percent in 2013. Health care construction, MHC predicts, will drop 16 percent in 2012, but will slowly rebound 2 percent in 2013. Institutional building construction will be down 13 percent in 2012 and level off for 2013. Manufacturing construction will decline a steep 31 percent in 2012, MHC says, as manufacturers cancel new investments, due to “concerns that Washington, D.C., policymakers won’t be able to take the necessary steps to avert the fiscal cliff.” MHC expects 8 percent growth in 2013. “With capacity utilization still relatively high, there’s incentive for manufacturers in 2013 to revisit plant expansion plans that may have been deferred this year,” MHC says. MHC forecasts public works constructionto decline 3 percent in 2012 and another 1 percent in 2013.

Highway and bridge construction is on track to slide 10 percent in 2012, due to “reduced federal support,” but will rise 3 percent in 2013, “helped by the support coming from MAP-21 [“Moving Ahead for Progress in the 21st Century”] and other financing means.” Electric utility construction is predicted to drop 31 percent in 2013 after reaching a record $51 billion in 2012, MHC says. “This year was boosted by the start of two very large nuclear power plants, and projects of similar magnitude are not expected for 2013,” MHC says. “The expiration of federal loan guarantees for renewable energy projects would also dampen construction in 2013.”

10/15/2012

Sales, revenue, and profit are three of the most common financial indicators that CFMs monitor. Regularly examining this type of information is critical to assessing company performance and trends. However, it is also important to recognize that this type of data is historical and more of a lagging indicator than a leading one.

To accurately determine how these financial measures can be improved, both GCs and subcontractors must determine the key performance indicators (KPIs) that impact those outcomes. In this way, contractors can influence these variables, address issues, and create intentional outcomes.

The more a KPI can deliver information in advance, the more opportunity a contractor will have to correct problems. Furthermore, it is important to recognize that no one KPI can tell the whole story. Multiple KPIs that relate to all critical business variables should be collected and reviewed. The key to finding your KPIs is to look at successes, find out what went right, and create metric expectations that make similar outcomes likely.

The first example of this type of analysis is related to the buyout process. When a GC wins a new project, it should immediately begin the process of fixing the costs. Most often, this is done through a buy-out process where subcontractors are formally contracted. KPIs that measure how quickly the work is bought out can be identified. Does it take a few days, a week, a month, or more? Similarly, GCs can monitor the final quantity of work that is bought out. For the profitability of a project to be maximized, should it be 60% bought out, or 90% bought out at a particular point in time? A baseline and/or goal for these types of KPIs can be helpful in driving change.

A subcontractor may also use the project schedule as a measure of its performance. A KPI that captures the timeliness of buyout of materials and the efforts that ensure an accurate work schedule can be extremely valuable drivers of success.

This post was first seen in the CFMA Update dated October 2nd. The writers of the post are Shane Brown and AJ Steger, partners with EKS&H. To learn more about this post visit www.cfma.org or contact the construction professionals of McKonly and Asbury, LLP.

09/04/2012

Construction firms of all sizes are recognizing that reduction of waste — such as defects, overproduction, and waiting — is becoming “an essential strategic imperative,” according to FMI Corp. “Efficiency is quickly becoming the mantra across construction organizations,” FMI reported in its white paper, “The Science of Efficiency and Productivity: Construction 2.0 in the New Normal,” released on July 11.

FMI examined how “lean” construction, prefabrication and modularization, and building information modeling are affecting the construction marketplace. “There are many misconceptions about these new tools and processes,” FMI said. “The first is the belief that only large, sophisticated contractors can benefit from construction systems such as prefabrication or elaborate modeling systems such as BIM. In all cases, there are levels and gradations from which contractors of all sizes can benefit.” FMI said that 77 percent of respondents to its 2012 Productivity Survey experienced some level of productivity enhancement as a result of their “lean” initiatives. “For contractors that achieve as low a net income as 2 percent to 3 percent, a 5 percent to 10 percent improvement in labor productivity has the ability to double the bottom line dramatically,” FMI noted.

Dramatic changes in the design of projects, FMI said, have had “one of the most influential changes” on contractor productivity: “Interestingly enough, the groundswell in this design enhancement has been led by trade contractors, not by the designers. Recognizing the need to compensate for poor or inadequately designed structures and systems, contractors assumed the reins of this three- or four-dimensional design tool to control their risk and delivery higher quality finished projects.” FMI said that 63 percent of the survey respondents have engaged in a project on which BIM was used and that 62 percent said they experienced some increase in their labor productivity relating to the application of BIM. “From a strategic perspective, firms must make a serious commitment to the long-term use of BIM,” FMI said. “Many firms view the costs associated with rework, inefficiency and poor coordination as enough motivation to consider integration of such a system.”

FMI added that prefabrication and modularization are revolutionizing the construction industry. “Many contractors are examining their projects from the perspective of what they can prefabricate rather than what they cannot,” FMI said. FMI noted that 69 percent of survey respondents have engaged in some sort of prefabrication on their projects, 98 percent of which achieved at least a 1 percent labor savings.

To learn more about this report, please vist the FMI website at www.fmi.org . To learn more about LEAN, its terms and concepts and how it can benefit the construction industry, please visit McKonly and Asbury, LLP’s LEAN Accountants Blog at www.leanaccountants.com.

08/13/2012

Small construction contractors will have improved access to bonds beginning Aug. 15 under the U.S. Small Business Administration’s Surety Bond Guarantee Program, thanks to a new, streamlined application process. The SBA issued a final rule on July 16 to implement its “Quick Bond Guarantee Application and Agreement.”

The rule simplifies the SBG program paperwork for construction contracts of $250,000 or less, combining two existing forms, the SBA Form 994 (Application for Surety Bond Guarantee Assistance) and the SBA Form 990 (Surety Bond Agreement), and eliminating an obsolete reference to SBA Form 994C. In addition, SBA will not require the principal to complete and submit two other forms for these small contract amounts, SBA Form 994F (Schedule of Work in Process) and SBA Form 413 (PersonalFinancial Statement).

To learn more about this new SBA Surety bond Guarantee Program, contact your financial advisor or the construction professionals of McKonly and Asbury, LLP.